2020 (6) TMI 751 - AT - Income Tax

Accrual of interest - CIT(A) held that interest of assessee has accrued for F.Y. 2008-09 and not 2007-08 - as per DR assessee had paid to its sister s concern to buy lands on behalf of assessee and made a huge payment of advance - HELD THAT - From the records we notice that it was submitted before CIT(A) that the funds were arranged by TATA sons and no interest bearing funds were utlilized to advance. In order to facilitate the transfer of lands from Unitec Group to the assessee it was agreed to conduct due diligence and accordingly MOU was entered. We notice that AO observed that these funds were utilized to acquire the UAS License and it is only make to believe transaction. We do not agree with the AO that how the funds were utilized by Unitec group is irrelevant and what is relevant is whether Unitec held the lands as per MOU on the date of transaction and whether due diligence activities were carried on or not. In the records we found that there is evidence of existence of above said conditions and no contrary evidence was brought on record by revenue. In our view the transaction entered by the assessee seems to be genuine and within the business dealings. It is also relevant to note that as soon as the period given for carrying out due diligence over Assessee modified the MOU entered and accordingly purchased only those lands which are as per agreement terms and for the balance advanced amount claimed interest @18.5%. AO has calculated the interest from the date of entering the agreement (MOU) and date of payment on 10.10.2007. But it is natural for the assessee to allow time to the other party to carry out due diligence as per terms of MOU. It is between the parties to decide how much time to allow in the execution of contract. Therefore assessee has given time up to 05.04.2008. Beyond that assessee has claimed penal interest and declared the same in its financial statement in the subsequent assessment year. In our view the action of the assessee in this transaction is within the business acceptable practices. Therefore we are inclined to accept the findings of Ld. CIT(A). - Decided against revenue.

Summary

Issues Involved:
1. Validity of the interest income assessment for F.Y. 2007-08.
2. Determination of the genuineness of the transaction between the assessee and Unitech Ltd.
3. Applicability of case laws cited by the revenue.

Issue-wise Detailed Analysis:

1. Validity of the Interest Income Assessment for F.Y. 2007-08:

The primary issue was whether the interest income on the advance of Rs. 1700 crores paid by the assessee to Unitech Ltd. should be assessed for the financial year 2007-08. The assessee argued that no interest income accrued up to 06.04.2008 based on the MOU dated 09.10.2007, amended by MOU dated 26.04.2008. The interest at 18.5% was considered from 06.04.2008 onwards and offered to tax for AY 2009-10. The Ld. CIT(A) deleted the addition of Rs. 97,80,82,190/- made by the AO, stating that the AO's action to assess not accrued interest at 12% for the period 09.10.2007 to 31.03.2008 was not valid. The tribunal upheld the CIT(A)'s decision, agreeing that the interest income was correctly declared in the subsequent assessment year.

2. Determination of the Genuineness of the Transaction:

The revenue contended that the transaction between the assessee and Unitech Ltd. was not genuine, arguing that the substantial advance payment of Rs. 1700 crores without due diligence was not a prudent business action. The assessee, however, provided evidence that the transaction was genuine, with the initial MOU indicating the intent to buy substantial land and a second MOU addressing the failure of Unitech to complete due diligence. The tribunal noted that the AO's focus on the utilization of funds by Unitech was irrelevant. The key consideration was whether Unitech held the land as per the MOU and conducted due diligence. The tribunal found the transaction to be within business practices and genuine, as the assessee had modified the MOU and claimed penal interest from 06.04.2008.

3. Applicability of Case Laws Cited by the Revenue:

The revenue relied on the cases of Rajasthan Art Emporium Vs. DCIT and Elmer Havell Electrics Vs. CIT to support their argument. The tribunal distinguished these cases, noting that in Elmer Havell Electrics, the issue was about interest-free loans to a sister concern, which was not the case here. In Rajasthan Art Emporium, the issue was the failure to prove receipt of services despite an agreement, which was not analogous to the present case where the payment was for land purchase and due diligence was conducted. The tribunal rejected the applicability of these cases to the current matter.

Conclusion:

The tribunal dismissed the revenue's appeal, supporting the findings of the Ld. CIT(A) and confirming that the interest income was correctly assessed in AY 2009-10. The tribunal also addressed the procedural issue of pronouncing the order beyond 90 days due to the COVID-19 lockdown, citing the decision in JSW Ltd and the exceptional circumstances as justification for the delay. The appeal filed by the revenue was dismissed, and the order was pronounced as per Rule 34(5) of ITAT Rules.